Rydex Investments rang the opening bell on the American Stock Exchange March 7 and introduced six new exchange traded funds, which are factor weighted on either growth or value rather than on traditional market cap size, and all cost 37 basis points.
The S&P/Citigroup Pure Style Indices divide the S&P 500, the S&P MidCap 400, and the S&P Small Cap 600 into sub-indexes designed to specifically track the growth and value portions of each index. Each pure style index holds about one-third of the market cap of the parent index.
The new ETF funds introduced Tuesday are: Rydex S&P 500 Pure Value ETF; Rydex S&P 500 Pure Growth ETF; Rydex S&P MidCap 400 Pure Value ETF; Rydex S&P 400 Pure Value ETF; Rydex S&P SmallCap 600 Pure Value ETF; and Rydex S&P SmallCap 600 Pure Growth ETF.
The growth style indexes measure three dimensions of growth: five-year earnings per share growth rate; five-year sales per share growth rate; and five-year internal growth rate. Conversely, the value style indexes measure: book value to price ratio; cash flow to price ratio, sales to price ratio; and dividend yield.
“We think that it’s a superior methodology in order for an investor or a financial professional to get the exposure that they’re looking for in the small-cap and/or growth or value space,” said Stephen Sachs, director of trading at Rydex.
Sachs added that the name of the indexes says it all. “Any investor, whether an individual or a professional looking to get exposure to [a growth or value] style box, is getting a much more pure exposure with these ETFs and a very concentrated portfolio,” he said.
“Unlike most of the style indexes, there is no overlap here,” said Srikant Dash, global equity index strategist at Standard & Poor’s. “There are a bunch of stocks that are pure value and there are a bunch of stocks that are pure growth. Most other indexes will have a middle region of blend stocks and force 60% toward growth and 40% toward value, or something like that.”
Dash said that if a certain sector of stocks, technology for example, was seen to have a high growth score then the index would be heavily weighted towards the technology sector. However, the index will avoid single stock concentrations by weighing the value or growth scores, not market cap.
Once the market opened March 7,Rydex tripled its ETF portfolio. Rydex also currently sponsors the Rydex S&P Equal Weight Fund); the Rydex Russell Top 50 ETF; and the Rydex Euro Currency Trust.